Today’s post is about the Linux Foundation’s recent announcement of Open Governance Networks, why this is important, and I also expand on the thinking behind various network approaches.
The Linux Foundation’s Logo and the scales of justice
Blockchain business networks and neutrality
A focus of this newsletter has been blockchain business networks. These are groups of businesses using blockchain technology to solve a common problem or as a basis for interacting on neutral grounds. Business networks vary vastly in the problems they are solving, the stakeholders, and their approach.
In several industries domain, like pharma supply chain traceability, there are many different networks all vying to become the network for the entire industry. Each of these networks is backed by a business that seeks to not only provide a solution to the immediate problem, like tracing prescription drug supply chains, as well as a more general platform for others to build on. But this structure poses two potential issues related to the neutrality of the business creating the platform.
First, the end user of these platforms worry about being locked into using a single platform: without competition the platform creator may seek undue rents. Alternatively, the platform creator may pivot and shut their platform down, leaving users scrambling to find an alternative. Second, other technology providers worry about the platform creator changing the rules of the platform to the benefit of the platform creator at the expense of everyone else. As a startup would you bet your entire business on building on top of a competitor’s technology? Probably not. I explored this problem in Neutral Platforms In Healthcare.
On the other hand, having multiple networks can be problematic. Returning to supply chain traceability, if the pharmaceutical industry’s tracking capabilities are fragmented on different networks that can’t talk to each other then that creates gaps where bad medicines can enter the healthcare system. A single network is preferable in this way. But how can that be reconciled with the challenges of neutrality that were raised above?
Introducing Open Governance Networks
That is where the Linux Foundation’s Open Governance Networks steps in. Brian Behlendorf, who is executive director of the Linux Foundation’s umbrella blockchain organization Hyperledger, opened with this:
The Linux Foundation has long served as the home for many of the world’s most important open source software projects. We act as the vendor-neutral steward of the collaborative processes that developers engage in to create high quality and trustworthy code.
These are the Linux Foundation’s credentials to host what they are calling Open Governance Networks, which I will get to describing in a moment. Brian’s blog post makes it clear that this is a response to the rise of blockchain business networks and in his words “a lack of clear or vendor-neutral governance” impeding adoption of these networks. Put another way Open Governance Networks are an answer to the challenges of neutrality I opened with.
Open Governance Networks are like open source software projects with an additional layer of governance that deals with the operations of a blockchain network. For example a core open source library will be at the heart of a network (software) and there will be a process for provisioning identities to members of the network using that library (operations). Another example: there will be some specific software for nodes in a network along with requirements for how those nodes can or must be used (operations).
The vision of Open Governance Networks is that competing businesses will collaborate together on open source software instead of building distinct, competing, and proprietary platforms and networks. What software is open sourced would vary from network to network, but generally it would be the underlying enabling technology, or the “platform.” Businesses could then build and sell proprietary applications on top of the open source core technology, and they would be able to deploy them to a ready-made network instead of standing up their own network. All of this allows businesses to focus on building applications instead of competing on creating platforms or convening networks.
The Linux Foundation does not intend to “lead” these networks in the sense that they will be dictating what technology is built. That is role is left to the members of an Open Governance Network, who would do so by contributing to open source code or other common assets. But the Linux Foundation will play an important role facilitating them by providing structure as well as logistical, marketing, legal, and project management support. They have extensive experience hosting critical open source technologies, and thus competitors can feel confident that the Linux Foundation will be a neutral arbiter between competing interests.
Thinking through strategy for platform creators
I have mostly focused on the perspective of the end user of business networks so far, but it is worth discussing the perspective of a potential platform creator. On one hand, as the Linux Foundation highlights, Open Governance Networks would allow companies to focus on building value-adding apps instead of the underlying pipes. On the other hand this level playing field will submit the company to more competition as the barriers to entry for building an app are lowered.
Some may puff their chest out and openly welcome this competition, but as Peter Thiel famously pointed out competition destroys business value. In Thiel’s words: The lesson for entrepreneurs is clear: If you want to create and capture lasting value, don't build an undifferentiated commodity business. By ceding the platform layer entrepreneurs would be inviting competition and forgoing a point in the value chain where they could differentiate themselves and capture value.
In an entrepreneur’s ideal world they would own the entire value chain from the platform to its applications. That offers the greatest opportunity for value capture by the entrepreneur. But as I have laid out here and in other contexts, there is tension with that ownership and the ideas of decentralization. In many cases platforms will need to be credibly neutral to gain adoption. There is no clear answer to navigate this tension, and entrepreneurs will need to create a strategy on a case to case basis. If we use the history of the Internet as our guide, one path forward is for entrepreneurs to initially forgo creating a platform and focus on a single use case first instead. This temporarily obviates some worries about neutrality and helps to secure a network effect that can be leveraged to bring others onto your infrastructure later.
But again, there is no single model that will work for all business networks; a plethora of different approaches can and should be pursued. The Linux Foundation’s Open Governance Networks are an important addition because they offer vendor-neutral governance, which is sorely needed in a few domains today. To that end I’m looking forward to the several Open Governance Networks which are to be announced by the end of the year.
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